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July 14, 2008

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Ari Koinuma

The last section is a great illustration. Looking at those statements, I can see how I shouldn't align myself to either statement completely. For example, to say that debt is always bad can keep us from starting a business or solving urgent problems.

As always, life is a balancing act, and each moment is a new unknown. The best we can do is to stand on both our feet and be ready to roll with the punches.

ari

The Financial Philosopher

Ari:

Great points! There are no real absolutes in this world and we have little control, except over our own participation in (and reaction to) physical world events.

We should give attention to those things we can control and be indifferent to those we cannot and, yes, balance and moderation are imperitive to our physical and mental health...

Thanks for the comment...

Kent

Jeremy

Despite recognizing that uncertainty is a normal part of life over a year ago, I still struggle sometimes to remember this simple truth.

On the one hand, visions and planning are essential in giving some purpose and direction, but if uncertainty is normal, how can one become emotionally attached enough to lead not only oneself, but also others, on a particular vision?

From Dwight D. Eisenhower:
"Plans are worthless. Planning is essential."

The Financial Philosopher

Jeremy:

You are correct. Planning is essential because uncertainty is a certainty. This is why we must place the greatest amount of energy on the things in life that we can control, such as our actions and reactions, and the least amount of energy on things that we cannot control, such as the actions and reactions of others...

Being a passive observer has its merits but not in every aspect of life. Absolute passivity does not differ much from inertia...

Also, without vision, we are blind...

Yet, blindness has its advantages, too, but that's another post!

Thanks, Jeremy. It's great to hear from you...

Kent

Steve SSK

Very interesting site, thank you for your work. I agree, it is all about probabilitys in the market. It is all about supply and demand. Best, Steve, SSK

The Financial Philosopher

Steve:

I agree. Probabilities and supply and demand are factors of the bigger picture of the market environment. The greatest challenge for the investor, however, is that the perceptions and emotions of the investor herd, regardless of fundamentals or reality, are perhaps a larger presence and influence on stock prices, especially in short-term market extremes...

Thanks for the comment...

Cheers...

Kent

Soullfire

Interesting post. I would agree that those who take opposite positions with invalid data or assumptions have no advantage over each other with regard to predicting future outcomes. However, if one side is correctly utilizing the data that is available to make a determination based on probable outcomes, one side could definitely have an advantage over another. Take the rain/no rain example- if once sunny skies become dark with clouds and the distant sound of thunder can be heard. The side taking the position that it will rain the next day will have a probable advantage over the side that says it won't. The same can be said about calling a bottom or not- it depends on the quality of data each side is using to base their determination on.

The Financial Philosopher

Soullfire:

You make a good point, especially in your use of the phrase, "utilizing the data that is available to make a determination based on probable outcomes."

Similarly, the "data available" on the "probable outcome" of an investor timing the market is lower returns over the long-term than for the investor who did not time the market and kept a passive, buy and hold strategy.

Making a prediction is not harmful in itself. But taking definitive actions based upon the prediction and failing to understand the consequences of our decisions is quite harmful...

If someone predicts no rain tomorrow because it is sunny today or because the weather man says 0% chance of rain, I will still keep an umbrella in my car. Similarly, I will not likely change my plans based upon a forecast for rain, either...

I believe you may be interested in a similar post on consequences as outlined by "Pascal's Wager" titled, "Finding God in Behavioral Finance." Here's the link:

http://financialphilosopher.typepad.com/thefinancialphilosopher/2007/10/finding-god-in-.html

Thanks for the comment...

Kent

Frank Farbenbloom

Yehezkiel Dror, my Professor of Political Science at the Hebrew University, in '72 gave a lecture that has turned out to be one of the most influential of my life.

Under the topic of "Public Policy Making" he discussed the issue of committees making plans.

The essential idea is that at the same time as one adopts a plan of action one must also have an alternative plan.

This alternative must be made at the same time as the main plan rather than waiting for the original to fail and then being forced to come up with an alternative in an "emergency".

From it I developed the concept of "Plan You Failure".

Applying the idea to my daily life has served me well for the past 35 years.

Thank you for another stimulating post.

Frank Farbenbloom

The Financial Philosopher

Frank:

Thanks for sharing your valuable lesson! Personally, I do not ask myself the question, "What will I do if I fail?"

I will say, however, that I do not really create "plans," as plans are traditionally viewed. Instead, I seek to "enable opportunities," some of which are known and some of which have not materialized yet.

So, in that respect, I do have "alternative" options as your Professor once suggested. The only place my view and his view differs is that I do not consider any of the alternatives as "failures" if they do not succeed because even our mistakes are opportunities to grow.

As I have said here before, the mistake is the philosopher's greatest tool for growth.

Thanks again for sharing your thoughts and please do so again in the future...

Kent

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